Make no mistake: The April sell-off in gold created some extensive “collateral damage” in the silver market.
The silver price dropped nearly 20% in just two days… and many Wall Street analysts were quick to downgrade their forecasts for the rest of 2013.
But we believe Wall Street analysts have grossly misinterpreted recent events.
And they have missed some extremely strong fundamentals regarding silver which makes the metal a fantastic investment today.
In fact, not only is this a good time to get your hands on silver… Recent events have made this possibly the greatest silver buying opportunity in history.
Let me explain…
5 Drivers To Launch The Next Silver Rally
All bull markets go through periods of consolidations and corrections. Silver is no exception.
In fact, because the global silver market is relatively small, silver prices tend to be more volatile.
The pounding selloff we witnessed in silver this past April is a testament to that fact. But volatility works both ways, so when silver rises, its price can virtually explode higher.
That’s exactly what happened in April 2011, when silver prices rose by 170% in the space of just 7 months. No wonder we call investing in silver like “gold on steroids”.
The thing you need to know is, it’s looking like the silver market is on the cusp of doing the same thing all over again. According to our research, the next stop could be $40 by year’s end, and $60 by 2014.
So what’s supporting and driving silver higher?
Silver Driver No. 1: Relentless Buying of Physical Silver
Despite the drubbing that silver took in mid-April, there’s one aspect of the market that most observers are simply ignoring: the physical silver market.
While gold and silver prices took a pounding, people were not running to unload their silver – quite the opposite. In fact, savvy investors were flocking to buy physical silver.
Even as silver prices dropped, buyers stepped up, and supply became so scarce, premiums nearly tripled to 18% above spot prices. Essentially, virtually no one was selling, yet a lot of buyers recognized that silver was “on sale” and decided to stock up.
In the first three months of 2013, the US Mint sold more than 15 million American Silver Eagle bullion coins. That’s the first time ever the Mint has sold this many coins so early in the year, setting a record in the 27-year history of the series.
EDITOR’S NOTE: This chart shows why gold could hit $3,000 an ounce over the coming years, despite its current bear market. Go here
Coin dealers across the US have been regularly selling out of their inventories, desperate to get new allocations.
With investors buying 56 times more physical silver than physical gold, Main street is setting the pace, while Wall street is oblivious to the trend.
Silver Driver No. 2: Silver ETFs Are Bulking Up
As savvy retail investors have been soaking up physical silver, so have the silver exchange traded funds (ETFs).
In the first quarter of 2013, over 140 tons of gold was sold by physically backed gold ETFs. But remarkably, silver ETFs bucked that trend.
In that same slice of time, the world’s silver ETFs actually added 20 million ounces to their vaults. That’s nearly $600 million of worth of silver being bought within just 3 months, all while silver prices were steadily declining.
Now silver ETF shareholders are a combination of both retail and institutional investors. But 20 million ouncesflowing in is a clear sign of recognizing value and steady hands.
This kind of action is especially revealing. It signals that once an ounce of physical silver is bought, its owners have “sticky” hands, and they are very reluctant to sell.
Silver Driver No. 3: Sentiment is So Bearish, It’s Time To Buy
Investor sentiment is often a great indicator – a great contrarian indicator, that is.
That’s because the herd usually does the right thing at exactly the wrong time. It’s what we call the Dumb Money.
Silver contracts are traded on futures exchanges. And one of the most useful gauges of investor sentiment is something called the Commitment of Traders Report (COT), produced weekly by the Commodity Futures Trading Commission.
When the speculators’ (dumb money) net short silver positions reach a major high, it’s nearly always a perfect contrarian signal. That’s typically when the silver price is either at or very near a major low.
And it’s exactly how things played out in 1997, 2000, 2001, and 2005. Each and every one of those instances marked exact or near-term lows from which silver prices either quickly shot higher, or began an extended rally.
In the weeks surrounding the April silver price selloff, silver short positions reached their highest levels in nearly 20 years. That’s an extremely bullish indicator for higher silver prices ahead.
Silver Driver No. 4: Obama’s Back, And He’s Good for Silver
The President has been very good for silver prices. In fact, he was so good, he helped make silver the best-performing major financial asset during his first term.
Now that Obama has sealed another four years, and Federal Reserve Chairman Ben Bernanke’s still in place and relying heavily on the printing press, I’m fully expecting a repeat performance. Thanks, guys, for more of the same.
Silver Driver No. 5: Insurance Against Government Theft
Back in 1933, President Roosevelt seized privately held gold by signing into law Executive Order 6102.
FDR’s official motive was to “provide relief in the existing national emergency in banking, and for other purposes…”
That single act criminalized the “hoarding” of gold by the public, giving people less than a month to turn in their gold.
Fast forward to 2013, and 80 years have gone by. Today, the 1933 gold confiscation is no longer common knowledge. But students of history realize the risk that a similar threat may surface again.
Interestingly, silver was not targeted by Executive Order 6102. Now, we can’t know if there will ever again be anything akin to this Oval Office edict – much less what it might cover and might say. But going on the past, and considering the size of the silver market relative to gold, silver could be a way to own a precious metal that just might sidestep any risk of future confiscation.
Silver is much less widely owned than gold, and that could help keep it off of the official radar.
Where will silver ultimately peak?
The bull market in silver is far from over. Given how silver has reacted after a strong selloff in the past, we could easily see the precious metal regain the $40 level by year’s end. And by 2014, $60 silver is looking very attainable.
If the 1970s bull market in silver is any indication, we could see silver reach $125 by the time this bull market finally peaks.
But this time around the fundamental drivers are so entrenched, and global demand is so powerful, we could actually see silver at double that level, finally reaching $250 per ounce.
And we’re not the only ones thinking silver has much, much higher to go.
Eric Sprott, the billionaire Canadian resource guru, recently said:
“I think silver will be the investment of this decade whereas gold was the investment of the last decade. Silver will outperform gold. I believe silver will trade down 16:1 ratio to gold…Your return will be 300% more. If you have the patience and can stomach the volatility, I think silver will by far be the better investment going forward.”
Editor’s Note: Do these charts and graphs prove that Bernanke’s aggressive money-printing policy is leading the U.S. economy to disaster?
In a minute I’m going to show you a way to get twice the gains that just holding silver can bring you. But first, in case you want to play silver straight up…
How to Buy Silver
Like gold, silver investments can be made in a variety of forms. Let’s take a look at some of the most popular.
Physical Silver: Physical silver can be purchased in a variety of sizes and weights, which determines its price. Most typical are 1.0 ounce silver coins, like the Austrian Silver Philharmonic, the American Silver Eagle, and the Canadian Silver Maple.
Their prices vary slightly due to differences in silver purity, with the Silver Maple being the highest at 99.99% pure. You’ll pay about a 16% premium over the silver price for coins due to the cost of fabricating them.
Another popular option is the 100-ounce silver bar, which commands a 5% premium over the spot price of silver.
These coins and bars are essentially bought for their silver content and not as collectibles. If you’re looking to build a silver stash – either large or small – bullion dealers may be the easiest way for you to do so. But do your homework first, and check them out before you buy. Also, avoid paying more than the premiums we noted above for either coins or bars.
A few dealers that have an established reputation are:
- Kitco.com: Premiums are fair and the selection is usually quite good. They have offices in both New York and Montreal.
- Asset Strategies International Inc: This dealer is located in Rockville, MD. Asset Strategies also offers gold storage options outside U.S. borders.
- Camino Coin LLC: Burlingame, CA.
- American Precious Metals Exchange: Oklahoma City, OK.
- The Tulving Co.: Newport Beach, CA
- Gainesville Coins: Lutz, FL.
You can also acquire “paper silver” through Perth Mint Certificates (PMC). Vault-protected and insured, PMC offers the only government-backed bullion storage program on an allocated or unallocated basis [this means stored separately for you (allocated), or stored along with everyone else’s (unallocated)].
In an “allocated” situation, your coins or bars are removed from the mint’s operating inventory, and placed in the Perth Mint Depository vault with your own account number. Allocated metals are not part of the mint’s balance sheet, so you will pay storage fees. The government of the state of Western Australia guarantees the certificate.
Minimums are USD $10,000 for your initial PMC purchase, with subsequent purchases at the USD $5,000 minimum level. If you hold your coins, bars, and bullion on an unallocated basis, they can be converted into specific coins or bars and you can then take delivery, if you wish. The Perth Mint Certificate program is a solid way to gain international diversification for your silver holdings.
Exhange-Traded Funds (ETFs) and Certificates: If you’re a conservative investor by nature, an ETF or similar type of fund may be the way to go.
For that type of investment, precious metals expert Peter Krauth likes the Sprott Physical Silver Trust(NYSE:PSLV). U.S. investors will like it, too, since the physical bullion that backs the fund is held in Canada – away from the potentially grasping hands of Washington, but still in a market that protects property rights and that’s easy for you to physically access.
A simple way to acquire a claim on silver is to buy units of the iShares Silver Trust ETF (NYSE: SLV). With some $5.5 billion in assets, SLV is the world’s largest silver-backed ETF, using JPMorgan Chase & Co. (NYSE: JPM) in London as its custodian. SLV shares, which represent approximately 1.0 silver ounce each, are easy to buy and sell through your brokerage account.
But Peter Krauth’s favorite “silver-only” fund is the ETFS Physical Silver Shares (NYSE: SIVR). Issuer ETF Securities Ltd. is one of the largest ETF providers in Europe, with some $16 billion under management. Each unit is about the equivalent of 1.0 ounces of silver in U.S. dollars. As well, it seems to trade with a net asset value that boasts almost no premium or discount, and management fees are reasonably low, around 0.30% annually. The company indicates that the physical silver that backs the units is held in a vault in London.Finally, in all your purchases, pay attention to costs – whether we’re talking about fund management fees or dealer premiums in excess of a metal’s market price, those costs can negate any benefit you’ve tried to establish.
How To Double Your Move On Silver
The ProShares Ultra Silver ETF (NYSEArca:AGQ) gives you a way to get twice the gains that just holding silver can bring you.
And thanks to compounding, it can get even better than that – way better.
It’s also really simple to trade.
There’s no need to open a futures trading account, put up a bunch of margin, or take on a lot of risk to get this leverage.
You see the ProShares Ultra Silver ETF is structured to provide double the returns of the silver price on a daily basis, net of fees and expenses.
And the leverage is built in. That means you don’t invest on margin, and you don’t need to worry about margin calls. (That’s all internally managed and packaged within the units.) You just decide how much you want to invest.
Remember that this ETF will move both up and down by twice as much as silver does on any given day. So you do need to consider that, while the silver price can be volatile, AGQ can move twice as fast.
Yet as silver continues its current bull run, and keeps moving higher, then AGQ becomes a great opportunity to leverage those gains.
Take a look at this chart comparing the performance of AGQ with iShares Silver Trust (NYSEArca:SLV), where SLV is a proxy for the price of silver, between January 2009 and now.
During that period SLV gained handsomely, moving from $11 to $33 to return about 200%.
AGQ, of course did much better. It soared from $10 all the way to $67, providing a 570% gain to shareholders.
But here’s where it gets even better…
If you measure returns from January 2009, right up to the peak of April 2011, SLV brought investors 370% gains as it climbed from $10 all the way to $47.
In that same timeframe, however, AGQ went from $10/unit to over $180, providing a stunning 1700% gains for investors.
That’s the beauty of leverage and compounding combined. Just remember, it cuts both ways.
Like many things in life, AGQ makes sense in moderation. And still, it can make a significant impact to your portfolio’s returns.
By PETER KRAUTH, Resource Specialist, Money Morning
April 26, 2013